Student loan interest rates expected to rise

THE ISSUE: Interest rates on federal student loans are expected to increase for the first time since 2014.

THE IMPACT: The average Massachusetts student, with a $34,000 federal loan, would pay approximately $1,300 in additional interest compared to the current rate.

Gerry Tuoti Wicked Local Newsbank Editor

Students and their families should brace for higher interest rates on their federal student loans, according to several college financial aid experts.

“It’s clearly not good news,” said Richard Doherty, president of the Association of Independent Colleges and Universities in Massachusetts. “The increases are not going back to the high-water mark, exactly, but if the average undergraduate loan in Massachusetts is around $34,000, that’s about a $1,300 increase in interest over the life of the loan. That’s real money.”

While the U.S. Department of Education has yet to formally announce new interest rates, financial aid experts say they are set to increase approximately 0.7 percentage points based on the formula the federal government uses to set them.

The rate increase, which is expected to take effect July 1, is triggered by the 2.4 percent yields from the May 10 auction of 10-year Treasury notes.

Interest rates on federal undergraduate loans, including the Stafford Loan, are set to increase to 4.45 percent, up from 3.76 percent, according to the formula. Rates on loans for graduate students are set to increase to 6 percent, up from 5.31 percent. Interest rates for direct PLUS loans for parents are expected to increase to 7 percent, up from 6.31 percent.

Rates are still near historic lows, but the anticipated hike would be the first since 2014.

Antoinette Hays, president of Regis College in Weston, said increasing the rates creates the appearance of misplaced priorities.

“One can buy a house or a car for less interest, or you can frequently buy furniture with 0 percent interest for a year. To say education is still a major priority in our country and have the federal government continue to raise the cost of higher education …” she said, her voice trailing off.

Regis College, Hays said, awards $20 million in financial aid and scholarships to its students each year. In some cases, philanthropic donors cover the gap when a student maxes out the amount he or she can borrow from lenders before completing a degree program.

At Framingham State University, where 68 percent of students receive federal loans and 85 percent get some sort of financial aid, administrators expect the effect of the rising interest rates will be fairly minor.

“We don’t anticipate a major impact. Rates will remain lower than have been for most of the past decade,” university spokesman Daniel Magazu said. “Having said that, we know college affordability is a major issue in the country right now, and we know any additional strain on families and students is not a good thing. We’d rather see it trending in the opposite direction.”

Hays said she’s concerned that although the interest rates are low, an increase could signal a return to significantly higher rates in the future, making college less accessible.

“My fear is with this creep, while it seems small, every year it’s going up,” she said. “I would be concerned that we’re definitely heading in the wrong direction, especially when data suggests more and more of our students have a greater need in this country.”